![]() ![]() ![]() A rosy forecast and a reasonable valuationĭropbox expects its second-quarter revenue to rise 15%-16% annually, and for its non-GAAP operating margin to expand to 16.5%-17.5%. ![]() Furthermore, Dropbox expects to remain profitable on a GAAP basis for the full year - while its rival Box remains deep in the red. Those higher margins, along with its stable revenue growth, enabled Dropbox to post a GAAP profit of $39.3 million in the first quarter, marking its first-ever quarter of GAAP profitability. Lower marketing expenses, which it attributed to "greater efficiencies" in spending, lifted its operating margin. That's a lot to ask investors to pay, and for not much growth.Dropbox attributed its gross margin improvement to its expanding scale and infrastructure and expects that expansion to continue for the full year. Still, at a valuation of $13.2 billion, Dropbox is trading for more than 43 times trailing free cash flow, and the only prediction for its growth currently found on S&P Global Market Intelligence is calling for Dropbox's profits to grow at a meager 8% annual rate over the next five years. And of course, the company is generating quite a load of cash - $305 million in positive free cash flow, which is certainly a point in Dropbox's favor. It's even made progress toward profitability, cutting GAAP losses from $326 million in 2015 to "only" $112 million last year. Dropbox has succeeded in growing its business mightily, with revenue nearly doubling from 2015 to 2017. Now whatĪnd to be honest, I see the same risk. ![]() Nomura warns that it sees "significant downside" in Dropbox stock. But although Dropbox may be able to drive down prices and reduce the profitability of its rivals, that doesn't necessarily mean that investors in Dropbox will profit. ![]()
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